Forex101

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FOREX TRADING 101

F O R E X C O N F I D A N T EBeginners guide to Forex trading

S t r i g n a n o F o r e x I n c .

w w w . f o r e x c o n f i d a n t e . c o m
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What Is Forex?

Foreign Exchange Trading

The Foreign exchange market is a large, growing and liquid financial market that oper-ates 24 hours a day. It is not a market in the traditional sense because there is no cen-

tral trading location or exchange". Most of the trading is conducted by telephone or

through electronic trading networks. The primary market for currencies is the interbank

market where banks, insurance companies, large corporations and other large financial

institutions manage the risks associated with fluctuations in currency rates. Many corpo-

rations have currency risk associated with there business transactions. Think of all the

Multi national companies(that are based in the United States; Coca Cola for example )

that have sales in Europe. If the Euro goes down verses the United States Dollar they

lose revenue. These companies need to Hedge their exposure, so they Buy and Sell

Currency accordingly. Trillions are traded everyday. It is the most liquid market in the

world, and is alway volatile. It offers a person a huge potential to make or lose large

sums of money in speculation.

Why Get Involved with Foreign Exchange?

Why were you curious about receiving this report on foreign exchange? Was it because you

heard that no special education was required to make phenomenal amounts of money? Was it

because you heard that you could work from your home, and earn a six figure income potential

from less than a full-time schedule? Well, Im here to tell you that some of that is partially true.

Foreign exchange for me, has given me everything I could want financially. However it has not

come without a price. You can make phenomenal amounts of money in foreign exchange and

you can work from your home with no overhead, but you do need some specialized training.

Foreign exchange markets do not give up their profits easily and people who are not aware of

the traps fall victim to them every day. There are many people who profess to be foreign ex-

change gurus I am not one of them. No, I dont consider myself a guru I consider myself a pro-fessional trader. My name is Thomas Strignano on a I am a retired Chief Foreign Exchange

Dealer of a Major International Commercial Bank.. I have traded for over 25 years, was a market

maker in the interbank market, I was in charge of the proprietary currency desk with over 30

traders below me. I have taught many people how to trade foreign exchange successfully. And I

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here to give you some beginning tips. . Youre correct in assuming that foreign exchange trading

done the proper way can offer you your second chance in life. As the world stumbles into finan-

cial crisis more and more opportunities occur in foreign exchange every day to make incredible

sums of money in a very short period of time. It is the only business that is explosively growing

right now. It offers totally flexible hours( the market is open 24 hours a day.)It is a field whereyou deal with pleasant professional people, youll earn respect and prestige of your family and

friends. Youll be the Man on the White Horse earning your family undying gratitude and

loyalty by providing them everything that they could need financially. A small price to pay fall

of this is getting the proper training and education. Dont believe in all the hype from Internet

marketers promising you pie in the sky riches overnight with a $500 investment. If it sounds too

good to be true, unfortunately it generally is. Professional foreign exchange trading requires a

passion for the marketplace a voracious appetite for learning. If all it took for learning how to

work a simple moving average then there would be no great gains in foreign exchange. Proper

foreign exchange trading for profits consist of three primary things. Proper money manage-

ment, psychology of trading( knowing who you are and your distinct personality traits) and a

good solid system that meets your personality. This this little report, will give you the basics of

foreign exchange. What a bid and ask is. How to calculate a profit or loss. What a pip(percent-

age in point) value is, and some other miscellaneous jargon that you need to begin your path to

foreign exchange profits. Take the basics that you learn here for me apply good common sense

with an undying will to succeed and I assure you that foreign exchange will over deliver

Forex TradingThe Basics



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Spot Market (In the inter bank market 2 day settlement of the transaction.)All

currencies have to be sent to the proper corresponding banks in 2 business days.

If the deal occurred on Monday, all currencies must be delivered by Wednesday.

If the deal occurred on Thursday, all currencies must be delivered by Monday.The spot market is the market for buying and selling currencies at the current

market rate. As opposed to a market place called the forward market, where

banks trade one month out to several years. The forward market is also com-

monly known as the swap market. From a retail platform you have no need to

worry about the delivery of currencies. The broker platform will settle all your

transactions for you.

Roll over

In the interbank market, when you take positions in currencies some have

higher interest rates than the other. As a bank trader, you need to roll over your

positions to cover for that one day that your account is either long or short a par-

ticular currency. The current interest rate will be applied. If a country has a

higher interest rate than the currency you are long you will pay a premium for

the rollover. If a country has a lower interest rate then the currency you long,

there will be a discount applied to the rollover. This is known as cost of carry. I

do need is for information purposes only and is something that you do not need

to be concerned about because the rollover is taking care of by your broker.



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Exchange Rate

The value of one currency expressed in terms of another. For example, if EUR/USD is1.3200, 1 Euro is worth US$1.3200.

Currency Pair

The two currencies that make up an exchange rate. When one is bought, the other issold, and vice versa.

Base Currency

The first currency in the pair. Also the currency your account is denominated in.

Counter Currency

The second currency in the pair. Also known as the terms currency.

ISO Currency Codes

USD = US Dollar

EUR = EuroJPY = Japanese YenGBP = British PoundCHF = Swiss FrancCAD = Canadian Dollar

AUD = Australian DollarNZD = New Zealand Dollar

First things first: all Forex transactions involve the simultaneous buying of one currencyand the selling of another currency. These two currencies are always referred to as acurrency pair. The seven most frequently traded currencies are known as the major cur-



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rencies. These include the US Dollar (USD), the Euro (EUR), the Yen (JPY), the PoundSterling (GBP), the Swiss Franc (CHF), the Canadian Dollar (CAD), and the AustralianDollar (AUD). Currency pairs look like this: USDJPY. The first currency in this pair (USD)is known as the Base Currency. This shows how much the base currency is worth asmeasured against the second currency (JPY). The second currency in this pair is known

as the Quote Currency. Example: consider the USDJPY price quote at 106.12. Thismeans that there are 106.12 Japanese Yen for every US Dollar. (Note: any currency paircontaining JPY (the Japanese Yen) is always quote with only two digits after the decimalpoint. Every other currency price has four or five digits after the decimal point. Four isthe most common.) All Forex price quotes include a two-way price, known as the bidand ask. The bid is always the lower of the two prices. The bid is the price at which thedealer (your broker) is willing to buy the base currency in exchange for the quote cur-rency. This means that you are selling the base currency and buying the quote currency.The Bid is always the price on the left side of the quotation. What this means: take thequote for USDCHF at 1.4527/32. The bid price is the quote to the left or 1.4527. So youare SELLING one US Dollar for 1.4527 Swiss Francs. The ask(or Offer) is the price at

which the broker will sell the base currency in exchange for the quote currency. Thismeans that you are buying the base currency and selling the quote Currency. Back toour USB CHF example, the ask price is to the right of the/Mark or 1.4532.

Translation; you can buy one US dollar for 1.4532 Swiss francs.

Currency BoxWhat does it mean?We are going to dissect the box so that you can understand exactly what the box

means. This is in essence the current market price of Eurodollar. To be more exact thecurrent spot price in euro dollar.The 1.43 in the top of the box is whats known as the handle, or the big figure. The 00is the pip bid and the 02offer is the pip spread. So this market is telling us that thecurrent price of the euro is 1.4300 bid and 1.4302 offered.Spread



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SpreadThe difference between the sell quote and the buy quote or the bid and offer price. Forexample, if EUR/USD quotes read 1.4300/02, the spread is the difference between1.4300 and 1.4302, or 2 pips. In order to break even on a trade, a position must movein the direction of the trade by an amount equal to the spread.

Pip

The smallest price increment a currency can make. Also known as points. For example,1 pip = 0.0001 for EUR/USD, or 0.01 for USD/JPY.

Pip Value

The value of a pip. Pip value can be either fixed or variable depending on the currencypair. e.g. The pip value for EUR/USD is always $10 for standard lots, $1 for mini-lotsand $0.10 for micro lots.

Working with this currency box if you were to hit the bid, youd be selling euro at1.43002. You are anticipating that the euro will go down in value against the dollar.Lets say for instance that you are correct and the euro goes down to 1.4275. Youretrading one standard lot of100,000. What is your profit?

1.4300 -1.4275 = .0025 x 100,000 = $250.

If you were to take the offer, youd be buying euro at 1.4302. Youre anticipating thatthe euro will go up in value against the dollar. Lets say for instance that you are correctin the euro goes up to 1.4345. Youre trading one stand a lot of100,000. What is your

profit?

1.4345-1.4302=.0043 x 100,000 = $430.



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Here is the same example explained a little bit differently to help get yourhead wrapped around it.

Sell Quote / Bid Price

The sell quote is displayed on the left and is the price at which you can sell the basecurrency. It is also referred to as the market maker's bid price. For example, if the EUR/USD quotes 1.3200/03, you can sell 1 Euro at the bid price of US$1.3200.

Buy Quote / Offer Price

The buy quote is displayed on the right and is the price at which you can buy the basecurrency. It is also referred to as the market maker's ask or offer price. For example, ifthe EUR/USD quotes 1.3200/03, you can buy 1 Euro at the offer price of US$1.3203.

Lot

The standard unit size of a transaction. Typically, one standard lot is equal to 100,000units of the base currency, 10,000 units if it's a mini, or 1,000 units if it's a micro. Somedealers offer the ability to trade in any unit size, down to as little as 1 unit.

Standard Account

Trading with standard lot sizes, generally 100,000 units of the base currency. e.g. Thepip value is $10 for EUR/USD.

Mini AccountTrading with mini lot sizes, generally 10,000 units of the base currency. e.g. The pipvalue is $1 for EUR/USD.

Micro Account

Trading with micro lot sizes, generally 1,000 units of the base currency. e.g. The pipvalue is $0.10 for EUR/USD.

Margin

The deposit required to open or maintain a position. Margin can be either "free" or"used". Used margin is that amount which is being used to maintain an open position,whereas free margin is the amount available to open new positions. With a $1,000margin balance in your account and a 1% margin requirement to open a position, youcan buy or sell a position worth up to a notional $100,000. This allows a trader to lever-



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age his account by up to 100 times or a leverage ratio of 100:1. If a trader's accountfalls below the minimum amount required to maintain an open position, he will receivea "margin call" requiring him to either add more money into his or her account or toclose the open position. Most brokers will automatically close a trade when the marginbalance falls below the amount required to keep it open. The amount required to main-

tain an open position is dependent on the broker and could be 50% of the original mar-gin required to open the trade.

Leverage

Leverage is the ability to gear your account into a position greater than your total ac-count margin. For instance, if a trader has $1,000 of margin in his account and heopens a $100,000 position, he leverages his account by 100 times, or 100:1. If heopens a $200,000 position with $1,000 of margin in his account, his leverage is 200times, or 200:1. Increasing your leverage magnifies both gains and losses.

To calculate the leverage used, divide the total value of your open positions by the totalmargin balance in your account. For example, if you have $10,000 of margin in your ac-count and you open one standard lot of USD/JPY (100,000 units of the base currency)for $100,000, your leverage ratio is 10:1 ($100,000 / $10,000). If you open one stan-dard lot of EUR/USD for $150,000 (100,000 x EURUSD 1.5000) your leverage ratio is15:1 ($150,000 / $10,000).

* Understanding leverage Part I* Understanding leverage Part II* Calculate Leverage

Manual Execution

An order which is executed by dealer intervention.

Automatic Execution

The order is executed automatically without dealer intervention or involvement.

Slippage

The difference between the order price and the executed price, measured in pips. Slip-page often occurs in fast moving and volatile markets, or where there is manual execu-tion of trades.

Drawdown



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The decline in account balance from peak to valley, until the account surpasses the pre-vious high, usually measured in percentage terms.

Support

Support is a technical price level where buyers outweigh sellers, causing prices tobounce off a temporary price floor.It is found with a low surrounded by a higher low oneach side.

Resistance

Resistance is a technical price level where sellers outweigh buyers, causing prices tobounce off a temporary price ceiling. It is found with a high surrounded by a lower highon each side.

Common Order Types

Market Order

An order to buy or sell at the current market price.

Limit Order

An order to buy or sell at a pre-specified price level.

Stop-Loss Order

An order to restrict losses at a pre-specified price level.

Limit Entry Order

An order to buy below the market or sell above the market at a pre-specified level, be-lieving that the price will reverse direction from that point.

Stop-Entry Order

An order to buy above the market or sell below the market at a pre-specified level, be-lieving that the price will continue in the same direction.

OCO Order

One Cancels Other. An order whereby if one is executed, the other is cancelled.



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GTC Order

Good Till Cancelled. An order stays in the market until it is either filled or cancelled.Common Trade Types

Long Position

A position in which the trader attempts to profit from an increase in price. i.e. Buy low,sell high.

Short Position

A position in which the trader attempts to profit from a decrease in price. i.e. Sell high,buy low.Common Trading Styles

Technical Analysis

A style of trading that involves analysing price charts for technical patterns of of break-outs against support or resistance.

Fundamental Analysis

A style of trading that involves analysing the macroeconomic factors of an economy un-derpinning the value of a currency and placing trades that support the trader's long orshort-term outlook.

Trend Trading

A style of trading that attempts to profit from riding short, medium or long term trendsin price. Use of technical analysis to get into the trade.

Range Trading

A style of trading that attempts to profit from buying and selling currencies between alower level of support and an upper level of resistance. The upper level of resistanceand the lower level of support defines the range. The range forms a price channel



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where the price can be seen to oscillate between the two levels of support and resis-tance.

News Trading( Dont recommend it.)

A style of trading whereby a trader attempts to profit from fundamental news an-nouncements on a country's economy that may affect the value of a currency, usuallyseeking short term profit immediately after the announcement is released.

Scalping( for the birds)

A style of trading that involves frequent trading seeking small gains over a very shortperiod of time. Trades can last from seconds to minutes.

Day Trading

A style of trading that involves multiple trades on an intra-day basis. Trades can lastfrom minutes to hours.

Swing Trading

A style of trading that involves seeking to profit from short to medium term swings in

trend. Trades can last from hours to days.

Carry Trading

A style of trading whereby the trader attempts to profit from holding a currency with ahigher rate of interest and selling a currency with a lower rate of interest, profiting fromthe daily interest rate differential of the position.

Position Trading

A style of trading that involves taking a longer term position that reflects a longer termoutlook. Trades can last from weeks to months.

Discretionary Trading

A style of trading that uses human judgement and decision making in every trade.



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